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Speech by SEC Commissioner:
Changing the Dialogue on Diversity to Achieve Results


Commissioner Luis A. Aguilar

U.S. Securities and Exchange Commission

The National Association of Minority & Women Owned Law Firms 2010 Annual Meeting & Gala
National Harbor, Maryland
October 4, 2010

Thank you for that kind introduction. I am delighted to join you here at the National Association of Minority & Women Owned Law Firms's (NAMWOLF) Annual Gala Awards Dinner. As many of you know, this year's focus "Changing the Dialogue on Diversity" is a topic close to my heart. I believe that the dialogue on diversity must be changed to one that yields results.

Rooney Rule

What do I mean about moving the dialogue from one of lip service to one of action? I can give a clear example. Another organization has had significant success correcting a glaring lack of diversity — the National Football League, the NFL. Although I am often kiddingly mistaken to be a Commissioner of the Southeastern Conference (the other SEC), I do think that the football profession has an important lesson to teach and can demonstrate the importance of changing the dialogue on diversity from one of talk to one of action. The head coaching position for NFL franchises stood out for decades for its glaring lack of diversity. For example, in 2002, the NFL published a study that said 70% of NFL players were black and yet, only 28% of the assistant coaches and 6% of head coaches in the league were minorities. 1

Over the years, this persistent lack of diversity at the head coaching spot attracted a long list of justifications including:

  • that there were no good minority candidates to be found;

  • that because the top college football coaches were not diverse, no pipeline existed; and

  • that the head coaching position required a kind of thinking that did not lend itself to minority coaches.

How often have we heard these spurious arguments? It is often said that one would love to hire a minority candidates except that they do not exist. As I have said before, this argument is completely bogus and the NFL proved it to be so.

In 2003, the NFL instituted the Rooney Rule, which requires all NFL teams to interview at least one minority candidate when filling a head coaching position or risk being fined. The goal of the rule was to put qualified candidates that may not have been thought about in the first instance in front of the team owners conducting the hiring. Since the rule was adopted, 22% of the head coaching spots have been filled with minorities- and, most notably, during the 2006 league season, 7 of the league's 32 head coaches were African-American (this was a high water mark — currently there are 6 head coaches, or 18.75%).2 3 This effort to expand the candidates considered for the head coaching job was the right thing to do, and it also helped teams find the very best people for the job. The results speak for themselves — two of the last five Super Bowls have been won by teams with African-American head coaches.

The NFL moved from lip service to action and the results are self-explanatory. It is time for the legal profession and the financial services industry to do the same.

In my remarks today, I will speak a bit about my background and then address the importance of diversity in the legal profession, in government agencies such as the SEC, and in corporate boardrooms. Before I continue, however, I need to issue the standard disclaimer that the views I express today are my own, and do not necessarily reflect the views of the Securities and Exchange Commission, my fellow Commissioners, or members of the staff.

My Background

As many of you know, I've been a vocal and consistent advocate of greater diversity my entire life — whether it's diversity at my own agency, the Securities and Exchange Commission, in corporate boardrooms, or in the legal profession as a whole. And I commend NAMWOLF for its efforts to promote diversity.

At the start, let me tell you a little bit about myself so you can understand what underlies my passion for this subject. I was born in Cuba and at the age of six, my peaceful childhood existence disintegrated. My parents sent my brother and me to the United States alone, as refugees, because they feared for our safety. Fidel Castro had seized control of the Cuban government and Cuban parents, afraid and unsure, were desperately sending their children far away. Thousands of children arrived in the United States without their parents or any resources. In my case, I did not see my parents again for four years. At the time, I did not speak a word of English and arrived with little more than the clothes that I was wearing.

Like so many others, I came to this country with very little and I'm grateful to this country for the opportunities it has provided. I paid my way through college, law and graduate schools by taking on jobs ranging from being a "stock boy" in a yarn store to loading baggage and cargo into airplanes at the Miami airport.

Once I was reunited with my parents, we moved through a few different towns as my father looked for better job opportunities. We moved to Ravenna, Ohio; Little Rock, Arkansas; and Rome, Georgia. I happened to live in Little Rock in the aftermath of the Little Rock Nine, the courageous African-American students who desegregated Central High School in 1957. I was awestruck that a legal process, a court order, could be a catalyst for social change. That's when I began to understand the power of the law and that is what I wanted to do.

I have now been a lawyer for over 30 years. I started my career at the SEC as a Staff Attorney and then went into private practice where I focused on securities and corporate law and became a partner at various national law firms. And for almost a decade, I served as the general counsel and head of compliance of a large global asset manager. During my time there, I also served as the president of a broker-dealer and headed the company's Latin American operations.

In addition to my professional work, I have actively participated in many community organizations. In particular, before accepting this appointment to the SEC, I served on the boards of several organizations that foster diversity, such as the Mexican American Legal Defense and Education Fund (MALDEF), the Hispanic National Bar Association, the Hispanic National Bar Foundation, the Georgia Hispanic Bar Association, the Girl Scouts local council and the Latin American Association. I've brought this commitment to diversity to the SEC and I am very supportive of efforts to create a more diverse workforce. I'm proud to serve as the sponsor of various affinity groups at the SEC, such as the Hispanic Employment Committee, the African American Council and the Caribbean American Heritage Committee. I also strongly supported the Commission's diversity disclosure rule and have raised the issue of diversity with regulated entities, self-regulatory organizations, and public companies alike.

I think you can see that NAMWOLF and I have a lot in common. We both see the strength in diversity.

Diversity in the Legal Profession

Sadly, I cannot say the same about our profession, the legal profession. Statistics demonstrate a disconnect between the homogeneity of our legal community4 and the growing diversity of our nation. In fact, the data regarding the current minorities in the legal profession is sobering. For example, in our nation's largest and most prestigious law firms, only seven percent of partners are minorities. Further, only two percent of partners are minority women.5

The persistent lack of diversity in the legal profession is unacceptable. It's a serious problem that requires attention and action until the profession resembles our increasingly diverse nation. I was moved by the invitation letter sent to me to keynote this event which stated "We can think of no one whose career better demonstrates that there is no upper bound on the legal issues and challenges that can be handled by diverse lawyers." As I look out onto this audience, I wish this said of each of you.

Diversity in the legal profession means more than an equal chance to make a good living as a professional, an important goal in, and of, itself. It also means equality of opportunity to practice law in a position of influence throughout society. Lawyers hold many of the senior positions in our civil service, in our legislative bodies, and of course, in our judicial branch. In a society such as ours, equality for all requires that everyone have a seat at the table and that they participate in developing and administering the rules that govern our society.

Unfortunately, the legal profession is not alone in needing to address its persistent lack of diversity.

Importance of Diversity for Government Agencies and Market Participants

Government agencies and financial market participants must also better reflect our increasingly multicultural environment. The Federal government, for example, has some work to do - take the SEC as an example. The facts tell a dismal story. While 32 percent of the SEC work force comprised people of color in 2007, only 19% of our attorneys were people of color, and just 7 percent were at senior employee level. The most telling numbers are of our senior officers. As of fiscal year 2009, the SEC's senior officers were approximately 89% white, 4% African-American, 3% Hispanic and 2% Asian. The gender breakdown among these senior officers was 67% male and 33% female.

In addition, the recently published Partnership for Public Service Annual Survey of the Best Places to Work in the federal government provided more evidence that the SEC needs to improve.6 The SEC dropped significantly in the "Best Places to Work" rankings, a report compiled of information from federal employees. In the latest rankings, the SEC fell from 11th to 24th place. In developing the rankings, the Partnership looked at many factors, including employee skills, effective leadership, training and development, and support for diversity. While the numbers were disappointing across the board, I was struck by the fact that the SEC ranked 24th out of 28 agencies in support for diversity.

It is absolutely clear that the SEC needs to do a lot more to recruit, retain, and advance minority candidates at the professional and senior leadership levels. It is equally clear that an enormous opportunity to do this confronts the agency in the next year. As a result of new resources related to regulatory reform, the SEC is slated to hire 800 people — a tremendous influx of new talent for an agency of just 3,600 people.7

It is important that minority candidates know about these opportunities at the SEC. Too often I hear a lack of diversity justified with the reasoning that the candidates do not exist. I know this is not true. Recently, I moderated an SEC-sponsored recruiting event targeting senior minority attorneys. The event, called the SEC Attorney Career Roundtable, attracted over 280 interested attorneys. A similar event was held just last week which targeted attorneys, accountants, economists and industry professionals and it attracted over 600 professionals.

Given the SEC's tremendous opportunity, the SEC senior staff making the hiring decisions must understand the persistent lack of diversity and they must undertake to interview the best and the brightest by conducting a comprehensive search. In my mind, no search can be comprehensive if the talent pool is homogenous and artificially limited.

Section 342 of the Dodd Frank Act — Office of Minority and Women Inclusion

In addition, Congress has made clear that the SEC, and all other financial regulators, should undertake efforts to recruiting and promote employees from all backgrounds. In particular, Section 342 of the Dodd-Frank Act contains a clear Congressional mandate for the SEC to establish a new Office of Minority and Women Inclusion. This Office will be responsible for all SEC matters relating to diversity in management, employment, and business activities. The Director of this Office is tasked with a broad mandate to develop standards:

  • for equal employment opportunity and racial, gender, and ethnic diversity of workforce and senior management;

  • for increased participation of minority-owned and women-owned businesses in programs and contracts of the agency; and

  • for assessing diversity policies and practices of regulated entities.

The new legislation specifically directs the agency to take affirmative steps to promote diversity in the workforce at all levels and includes steps that the SEC must undertake as a part of its outreach efforts. This new Office must be established within six months after the legislation went into effect — which means that this Office will have to be up and running by January. The first order of business will be hiring the new Director of the office who will have a lasting impact on the creation and effectiveness of this office. I look forward to the job description being posted and encourage you all to recommend strong candidates for the job. The SEC must by law undertake to increase diversity at every level of the agency's workforce. I look forward to this new Office leading the charge and I will provide it with all the support that I can.

Diversity in the Boardroom

Lack of Diversity in Corporate Boardroom

Another area that needs attention is the persistent lack of diversity in our corporate boardrooms. Many nations have been focused on Board diversity for years.8 Others are just now beginning to do so. For example, starting in 2011, companies in Australia will be required to disclose the company's progress related to board-established gender objectives - and will also be required to disclose the number of female employees in the entire organization, in senior management, and on the board. In the United Kingdom, a 2010 initiative now requires companies to "pay due regard to the benefits of diversity on the board, including gender" when searching for and appointing directors.9

In the United States, new SEC rules, effective as of February 2010, now require public companies to disclose how they view diversity. While there has been criticism as to how well the rule is working, and while there may be more work to do, it's an important first step.

Many studies indicate that diversity in the boardroom results in real value both for companies and their shareholders. In fact, one report found that companies with diverse boards perform better than boards without diversity.10 The report — Board Diversification Strategy: Realizing Competitive Advantage and Shareowner Value — stated that companies without ethnic minorities and women on their boards eventually may be at a competitive disadvantage and have an under-performing share value. The report also found that a selected group of companies with a high ratio of diverse board seats exceeded the average returns of the Dow Jones and NASDAQ indices over a five-year period.

There are a number of other studies discussing the effects of boardroom diversity on a company's financial performance. 11 There are many who believe, and whose studies show, that a diverse board improves outcomes, particularly financial performance, and that it improves decision-making processes, which may in turn improve firm performance.12

Notwithstanding these studies, there is a persistent lack of diversity in corporate boardrooms across this country — women and minorities remain woefully underrepresented. In 2008, for example, the Alliance for Board Diversity compiled statistics about the composition of the boards of directors of Fortune 100 companies and found that the majority of board members, 71.5%, were white men, and that only 28.5% of the board seats were held by women and minorities.13 The one bright spot among these low numbers is that women represented 39% of all new board appointments recorded in the Directors and Boards Roster for 2009. The 39% figure represents 165 out of 424 board positions filled in 2009 and represents an increase from the 25% of seats filled in 2008.14 This is an upward movement that I hope is a trend rather than a year-to-year aberration.

Given the apparent lack of diversity and the many studies that indicate the real economic benefits of diverse boards, it should be no surprise that many investors — from individual investors to sophisticated institutions — asked the Commission to provide for disclosures about the diversity of corporate boards and about a company's policies related to board diversity. For example, in 2003, the Commission did a rulemaking regarding nominating committees that did not mention diversity, and nonetheless the Commission received a significant number of letters requesting that the Commission require disclosure about a board's diversity.

New SEC Rule Regarding Diversity Policy Disclosure

Because of the importance of boards of directors, in 2009, I worked with the SEC staff to seek input as to whether investors and other market participants required greater information regarding diversity in the boardroom. In response to our proposal,15 we were deluged with letters. These letters were overwhelmingly supportive, with approximately 90% expressing support for disclosure of information related to race and gender diversity on the board.

We received letters from persons and organizations representing over $3 trillion in assets advising us that information about board diversity is something they find important in the assessment of companies that they own. When such a sizeable portion of the U.S. capital markets tells the Commission that they seek diversity-related information for their decisions, it is clearly material.

As a result it was incumbent on the SEC to respond to the needs of investors. Accordingly, last December, the Commission, for the first time, adopted a rule to assess a company's commitment to developing and maintaining a diverse board. Specifically, the rule will require a company to disclose:

  • whether diversity is a factor in considering candidates for nomination to the board of directors;

  • how diversity is considered in that process; and

  • how the company assesses the effectiveness of its policy for considering diversity.

A review of the filings already made indicates, that although some companies have done a good job and provided useful information, many companies could do better. I have asked our staff to consider how this situation can be improved and I expect better disclosures in the future.

Financial Market Participants

In addition to corporate boards needing to do better, financial market participants in the private sector also need to work harder to achieve diversity in the workplace. The lack of diversity in the financial services industry is particularly acute. A 2006 Equal Employment Opportunity Commission report on employment in the financial services industry found that the percentage of African American and Hispanic managers and professionals was lowest in the securities sector (4% and 3%, respectively).16

Even more troubling, the GAO recently published a study finding that overall diversity at the management level in the financial services industry did not change substantially from 1993 through 2008, a span of 15 years.17 According to EEOC data cited by the GAO, in 2008, white males held 64% of senior positions, African-Americans held 2.8%, Hispanics 3%, and Asians 3.5%. Clearly, the financial industry is another segment of our society that must do substantially better.


The disheartening statistics arising from the legal profession, the government, corporate boardrooms and the financial industry speak for themselves; there is much work to be done. To that end, I again commend NAMWOLF for its efforts. I look forward to working together to changing the dialogue on diversity to one of action. There are significant opportunities for change in front of us including the 800 new people to be hired by the SEC and the establishment of new Offices of Women and Minority Inclusion at all of the financial regulators. Like you, there is no doubt in my mind that women and minorities have a lot to contribute to our nation and to the great challenges we face ahead.

Thank you.



Modified: 10/13/2010